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The importance of health to economic growth of any economy cannot be overemphasized, to this effect this study examined the impact of Health Expenditure and Health Outcome in Nigeria Economic Growth from 1980 to 2015.The study made use of secondary data sourced from the Central Bank of Nigeria (CBN) statistical bulletins. The research made use of Ordinary least square (OLS) for its analysis. The findings show that there is a long run relationship between health expenditure and health outcome with Economic growth of Nigeria. From the analysis all the variables except secondary school enrollment conform to the economic a priori expectation. Health expenditure, gross capital formation and Life Expectancy  are positively related to economic growth in Nigeria while secondary school enrollment are negatively related to Economic growth in Nigeria within the period 1980 to 2015.The Study recommends that government should  invest  more in health  and ensure that the expenditure disbursed on health is properly utilized as it will bring about a good health outcome which will inevitably cause increased productivity that will tend to economic growth in Nigeria. Also it is recommended that Government should encourage savings and investment which is also necessary for economic growth; as well ensure a good universal education programme.


Title                                                                                                            i

Certification Page                                                                                       ii

Approval Page                                                                                           iii

Dedication                                                                                                  iv

Acknowledgment                                                                                        v

Abstract                                                                                                      vi

Table of Content                                                                                        vii

List of Tables                                                                                              ix



1.1.    Background of the Study                                                                            1

1.2.    Statement of the Problem                                                                           3

1.3.    Research Questions                                                                           5

1.4.    Objectives of the Study                                                                     5

1.5.    Research Hypothesis                                                                        5

1.7.    Significance of the Study                                                                            6



2.1.    Introduction                                                                                                7

2.2     Theoretical Literature Review                                                           7

2.2.1. Conceptual Issue                                                                              8

2.2.2. Basic Theories                                                                                  10

2.3.    Empirical Literature Review                                                             13

2.4.    Summary of Literature Review                                                                   22

2.5. Justification of Study                                                                          22




3.1.    Introduction                                                                                                24

3.2.    Theoretical Framework                                                                     24

3.3.    Model Specification                                                                          24

3.4.    Estimation Technique and Procedure                                                         27

3.5.    Evaluation of Estimates                                                                    27

3.6.    Test of Research Hypotheses                                                            31

3.7.    Nature and Sources of Data                                                             31



4.1.    Introduction                                                                                               32

4.2.    Data Presentation                                                                             32

4.3.    Data Analysis                                                                                   37

4.4.    Evaluation of Research Hypotheses                                                 43

4.5.    Discussion of Findings                                                                      46



5.1.    Introduction                                                                                               49

5.2.    Summary of Findings                                                                       49

5.3.    Conclusion                                                                                        50

5.4.    Recommendations                                                                                      50

5.5.    Agenda for Further Studies                                                               51

References                                                                                                  52

Appendix                                                                                                   56


List of Tables

Table 2.1.            Tabular Summary of Empirical Literature                      8

Table 4.1.            Unit Root Test Results                                                   33

Table 4.2.            Johansen Cointegeration Test (Trace)                                      34

Table 4.3.            Maximum Eigen Value Cointegration Test                     35

Table 4.4.            Granger Causality Test                                                   36

Table 4.5.            OLS Result                                                                     37

Table 4.6.            Summary of A priori Expectation                                            38

Table 4.7.            Summary of t- test                                                          39

Table 4.8.            Test for Multicollinearity                                                         42

Table 4.9.            Test for Heteroskedasticity                                             43






1.1. Background of the Study

The effect of health on worker’s productivity suggests a relationship between health and aggregate output. Healthy workers lose less time from work due to ill health and are more productive when working. Health gains had the economic consequences of widespread economic growth and an escape of ill-health traps in poverty (World Health Organization, 1999). There has been a growing interest to extend the relationship between health and economic growth, catalyzed in considerable extent by a 1993 World Bank report on health (World Bank, 1993). Barro (1996) comments, that health is a capital productive asset and an engine of economic growth. Fifty percent of economic growth differentials between developed and developing nation is attributable to ill-health and low life expectancy (WHO, 2005). This is because developed countries invest a substantial proportion of their budgetary allocations on provision of health care because they are convinced that their residents’ health can serve as a major driver for economic growth. As health is wealth, no amount spent on health by a nation is considered too much. The

United Nation (UN) recommended for a country, an average of 8 to 10 percent of the GDP as benchmark expenditure on health (Oni, 2014). Government in Nigeria, over the years have made deliberate efforts at ensuring that there is increase in the level of public expenditure on health due to the importance of health to economic growth(Bakare and Sanmi,2007;Oni,2014).

Investment in health is a welfare enhancing activity; it also represents a major component of human capital. Investments in health, thus, improve the welfare of citizens — for people are happy to be healthy. At the same time, such investments improve the productive and earning capacity of individuals and consequently for nations productivity and income both for the individual and the nation (Grossman, 1972). Health expenditures are an expenditure item with multiplier effect, increased health expenditures lead to an increase in total expenditures and aggregate demand (Kurt, 2015).

To achieve and maintain a sustainable level of growth and development, it will be achieved by better nutrition and disease treatment opportunities along with wider access to preventive medical technology. In this way, loss of labor or efforts does not emerge in the society and thus, the amount of labor supply increases. On the other hand, because healthy individuals are fit both physically and mentally, they are expected to contribute to production more than a sick person and increase productivity thus, leading to a positive impact on economic growth (Kurtz, 2015). Therefore, when a person is healthy, life expectancy increases and this promotes individual savings and investments. Health is central to human general well-being, as well as a prerequisite for increased productivity, and overall economic growth and development of an economy. Health is also a driving force upon which other human capitals such as education, skills, etc, rely on (Maduka, Madichie andEkesiobi, (2016).

The health of a population determines to a large extent, the earning power of the population by determining their ability to contribute to economic activities. This has implication on the level and state of poverty. (Chaudhry,Faridi, Farooq andArif,2013)stated that labor productivity and labor supply increases with the increase in healthy labor force as healthy person has more time available for work. Physically and mentally healthy workers can handle modern technology much efficiently. The wage levels in an economy are also linked with the productivity; therefore, as the productivity of labor increases due to better health conditions, the wage rate also tend to rise. Human capital theory suggests that the level of education increases productivity. It is observed that healthy people usually have more chances to get education as compared to unhealthy workers. It is evident that not only income levels are greatly determined by health conditions but the distribution of this investment between saving and investment is also influenced by the health outcomes. (Chaudhry, et al, 2013)

The increase in the rate of non-healthy individuals in the community increases workforce loss and reduces productivity in developing countries, whose economic growth and economies are based on labour, and creates more significant impacts and losses on the production power as compared to those in the developed countries (kurt, 2015).In this case, developing countries cannot fully take advantage of the cheap labor factor to the extent required. They fall behind even more disadvantaged than an already disadvantageous situation. Therefore, the health of the society and the labour market as well as health expenditures are more important for developing countries. As it applies to all countries, an adequate and effective way of making health expenditure is important for Nigeria, which is a developing country.


There seems to be a broad consensus that economic growth can definitely lead to improvement in health. For example, economic growth could lead to increased availability of food; increased earnings which makes health spending more affordable; and also raises demand for good health services. Higher growth could also imply higher public revenue which can translate tohigher investment in health infrastructure. Thus, the question that would readily come to mind is whether causality exists in the reverse direction? In other words, does improve health leads to higher growth? If yes, how important is the contribution of health when one accounts for otherpotential factors that are empirically known to drive growth? It is therefore likely that causalityexist in both directions, though they could be difficult to measure and estimate. Nevertheless, it is evident that there is increasing debate on which direction dominates. Solution or informed contribution to this debate would have profound policy implications. For example, an empirical finding which suggests that growth lowers infant mortality could spur the necessity for putting in place growth-enhancing policy reforms. In the contrast, if it is observed that improve health ofthe population is growth enhancing, then it would be noted that social returns on policies that improve health status have been largely understated, and thus health improving policies would be part of the set of intervention measures to increase growth.

Nigeria general government expenditure on health as a share of total health expenditure fluctuated substantially in recent years; it tended to increase through 1980 – 2015period (Konaem, 2017). This increase in health care expenditure in Nigeria has been on the increase over the years. This is because of the importance of health to nation building and as a facilitator of economic progress. It should however be noted that despite the increase in government expenditure on health provisions in Nigeria, the contribution of this to human health is still marginally low (Oni, 2014). Moreover, the extent and magnitude of its impact on economic growth is yet to be adequately investigated probably because of the general unidirectional impression that economic growth facilitates better health. Therefore, there is a question of whether causality exists in the reverse direction? In other words, does improved health lead to higher growth?

Therefore, this study seeks to evaluate the impact of health expenditure and outcome to determine the extent and magnitude of its contribution to the economy from 1980 to 2015.

1.3. Research Question

  1. What is the impact of health expenditure on Economic growth in Nigeria?
  2. What is the impact of health outcome onEconomic growth in Nigeria?
  3. Does any bilateral causality relationship exist between health expenditure and economic growth?

1.4. Objective of the Study

The broad objective is to examine the impact of health expenditure and health outcome on economic growth. Specifically, the study seeks:

  1. To examine the impact of health expenditure on Economic growth in Nigeria.
  2. To evaluate the impact of health outcome on Economic growth in Nigeria.
  3. To verify if there is any bilateral causality between health expenditure and economic growth.

1.5. Research Hypotheses

  1. HO: Health expenditure has no significant impact on Economic growth in Nigeria.

H1: Health expenditure has a significant impact on Economic growth in Nigeria

  1. HO: Health outcome has no significant impact on Economic growth in Nigeria.

H1: Health outcome has a significant impact on Economic growth in Nigeria.

  1. H0: There is no bilateral causality between health expenditure andeconomic growth in Nigeria.

H1: There is bilateral causality between health expenditure andeconomic growth in Nigeria.

1.6. Significance of the Study

  1. The result of the study will assist federal government of Nigeria to improve on strategies which will improve the health sector in the country.
  2. This study will reveal to policy makers the significance of human capital development to economic development and thus, enact the needed policy for human capital development
  3. This study will provide basic information about the importance of good health in the economy. Thus, enable a deregulation of policies by the government to minimize the spread of negative health outcome in Nigeria

4. The study will contribute to the advancement of the existing literature on the impact of health expenditure and health outcome in the Nigerian economy


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